Exclusive: Brazil likely won't have new jets for World Cup

SAO PAULO/BRASILIA (Reuters) - Brazilian President Dilma Rousseff has again delayed choosing a provider for 36 new Air Force jets, meaning the country likely won't have any next-generation fighters available for security when it hosts the World Cup soccer tournament next year.

The Air Force sent embassies representing the three companies that are finalists for the $4 billion-plus deal a letter this week requesting they renew their applications, which formally expire on March 30.

The request extends the tender period by up to another six months, the Air Force said in an statement emailed to Reuters on Friday. The finalists are Boeing Co.'s F/A-18 Super Hornet, Dassault Aviation SA's Rafale, and Saab AB's Gripen.

The extension effectively ended the companies' hopes that Rousseff might announce her decision this month. The companies may now need to recalculate critical pieces of their offer, such as price.

Rousseff has been hesitant to make a decision on the jets, citing concerns over the hefty price tag at a time when Brazil's economy is stuck in a two-year slump.

The tender, one of the biggest such defense contracts in the emerging-market world and a critical piece of Brazil's strategic alliances for years to come, has been postponed by three different Brazilian governments over the past decade.

However, this latest delay could pose new problems.

Sources with knowledge of the tender process told Reuters that, because of the time needed to negotiate a deal and then manufacture the jets, it is now logistically impossible for new aircraft to be delivered before Brazil hosts the World Cup, starting in June 2014.

Meanwhile, the country's current fleet of Mirage fighters - which the new jets are meant to replace - is so old that the Air Force planned to ground them at the end of this year.

Asked about the delay on choosing the new jet, a defense ministry spokesperson said, "The matter is in the president's hands and she will decide at the appropriate time."

Whether Brazil actually needs the jets for security at the World Cup is a subject of debate.

Brazil has no real enemies, and has not been a target of terrorism in recent years. In 2010, then-Defense Minister Nelson Jobim dismissed any link between the procurement of the jets and the upcoming sporting event, declaring, "From what I know, planes don't play soccer."

However, at least one other recent World Cup host felt differently.

When South Africa hosted the tournament in 2010, Saab's Gripen jets were a fixture in the skies overhead, logging a total of 259 hours in patrols during the event, according to the company's official blog. Saab said the Cup was the South African Air Force's largest defense operation ever.

Brazil could delay the retirement of its Mirages or rely on its fleet of smaller, also aging F-5 jets for patrols during the Cup. One source said Brazil could also "rent" jets just for the tournament, although that could pose challenges for both equipment delivery and proper pilot training.

Rousseff has not indicated which option she favors, although Boeing appears to be the current frontrunner, thanks in part to efforts to deepen its strategic partnership with Brazilian aircraft maker Embraer SA.

Rousseff has said any purchase must lead to technology transfers and other long-term benefits for Brazilian companies. She has also repeatedly told visiting U.S. officials she believes the F-18 is technically the superior jet.

After the United States chose Embraer for a major defense contract on February 27, a senior Brazilian official told Reuters that was a "very good development" for Boeing's hopes in the jets deal.